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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2009 Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) M. COMPENSATED ABSENCES It is the City's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. All vacation pay and the portion of sick pay allowable as severance pay is accrued as incurred in the government -wide and proprietary fund financial statements. The current portion is calculated based on historical trends. N. LONG -TERM OBLIGATIONS In the entity-wide financial statements, long -term debt and other long -term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight -line method. Bond issue costs, if material, are amortized over the term of the related debt using the straight -line method. In the governmental fund financial statements, bond premiums and discounts, as well as bond issue costs are recognized during the current period. The face amount of the debt issue is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts are reported as other financing uses. Issue costs are reported as debt service expenditures. O. FUND EQUITY In the governmental fund financial statements, reservations of fund balance represent those portions of fund equity not appropriable for expenditure or legally restricted by outside parties for use for a specific purpose. Designated fund balances represent tentative plans for future use of financial resources that are subject to change. P. INTERFUND TRANSACTIONS Interfund services provided and used are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures /expenses initially made from it that are properly applicable to another fund, are recorded as expenditures /expenses in the reimbursing fund and as reductions of expenditures or expenses in the fund that is reimbursed. All other interfund transactions are reported as transfers. All Interfund transactions are eliminated except for activity between governmental activities and business - type activities for presentation in the entity-wide statements of net assets and statements of activities. 41